Cathay General Bancorp Q4 2024 Earnings Report

Cathay General Bancorp EPS Results

• Actual EPS: $1.12
• Consensus EPS: $1.10
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Cathay General Bancorp Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $184.87 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Cathay General Bancorp Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, January 22, 2025
• Conference Call Time: 6:00PM ET

Cathay General Bancorp (NASDAQ:CATY) operates as the holding company for Cathay Bank that offers various commercial banking products and services to individuals, professionals, and small to medium-sized businesses in the United States. The company offers various deposit products, including passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits. It also provides loan products, such as commercial mortgage loans, commercial loans, small business administration loans, residential mortgage loans, real estate construction loans, and home equity lines of credit, as well as installment loans to individuals for household, and other consumer expenditures. In addition, the company offers trade financing, letter of credit, wire transfer, forward currency spot and forward contract, safe deposit, collection, automatic teller machine, Internet banking, investment, and other customary bank services, as well as securities and insurance products. Cathay General Bancorp was founded in 1962 and is headquartered in Los Angeles, California.

Cathay General Bancorp Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's 4th Quarter and Full Year 2024 Earnings Conference Call. My name is Asha, and I will be your coordinator for today. At this time, all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session. Call.

[Operator]

Today's call is being recorded and will be available for replay at www.capagemelbancorp.com. Now, I would like to turn the call over to Georgia Lo, Investor Relations of Cathay General Bancorp. Please go ahead.

[Georgia Lo, Assistant Secretary & Investor Relations at Cathay General Bancorp]

Thank you, Asha, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer and Mr. Heng Chen, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that the speakers on this call may make forward looking statements within the meaning of applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially.

[Georgia Lo, Assistant Secretary & Investor Relations at Cathay General Bancorp]

These risks and uncertainties are further described in the company's annual report on Form 10 ks for the year ended December 31, 2023, at Item 1A in particular, and other reports and filings with the Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such forward looking statements. Any forward looking statement speaks only as of the date on which it is made and except as required by law, we undertake no obligation to update or review any forward looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events. This afternoon, Cathay General Bancorp issued an earnings release outlining its Q4 and full year 2024 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cathaygeneralbancorp.com.

[Georgia Lo, Assistant Secretary & Investor Relations at Cathay General Bancorp]

After comments by management today, we will open up this call for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Chang Liu.

[Chang Liu, President and CEO at Cathay General Bancorp]

Thank you, Georgia, and good afternoon. Before we go into our 2024 Q4 earnings, I know that our hearts are heavy with the news of the devastating fires that have swept across Los Angeles. The destruction is unimaginable and our thoughts are with every person affected. Recovery is a long term process. When the flames are extinguished, the work of rebuilding lives and communities will continue.

[Chang Liu, President and CEO at Cathay General Bancorp]

The bank, along with the rest of our Los Angeles community, will continue to work diligently towards that part. This afternoon, we reported net income of $80,200,000 for Q4 2024, an 18.8% increase as compared to $67,500,000 in Q3. Diluted earnings per share increased 19.1 percent to $1.12 per share for the 4th quarter as compared to 0.94 per share in Q3. During Q4 2024, we repurchased 506,651 shares of our common stock at an average cost of $47.10 per share for $23,900,000 under our May 2024, 125,000,000 stock buyback program. We anticipate continuing to repurchase around $30,000,000 in stock in Q1 2025, depending on market conditions.

[Chang Liu, President and CEO at Cathay General Bancorp]

In Q4 2024, total gross loans increased $2,400,000 or 0.05 percent annualized, primarily driven by increases of $59,000,000 or 2.4 percent annualized in CRE loans and $30,000,000 or 11.9 percent annualized in construction loans, offset by decreases of $61,000,000 or 4.2 percent annualized in residential mortgages and $9,000,000 or 1.1 percent annualized in commercial loans. We expect loan growth in 2025 to be between 3% 4%. Slide 7 shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 63% fixed rate and hybrid loans, excluding fixed to flow interest rate swaps on 4.1 percent of the total loans. Fixed rate loans comprised 31% of total loans and a hybrid and fixed rate period comprised 32% of total loans.

[Chang Liu, President and CEO at Cathay General Bancorp]

We expect these fixed rate loans to support our loan yield as market rates are expected to decline. We continue to monitor our commercial real estate loans. Turning to Slide 9 of our earnings deck. As of December 31, 2024, the average loan to value of our CRE loans was 49%. As of December 31, 2024, our retail property loan portfolio, as shown on Slide 10, comprised of 24% of our total CRE loan portfolio or 13% of our total loan portfolio.

[Chang Liu, President and CEO at Cathay General Bancorp]

90% of the $2,400,000,000 in retail property loan is secured by retail store and buildings, neighborhood mixed use or strip centers, and only 9% is secured by shopping centers. On Slide 11, office property loans represent 14% of our total CRE loan portfolio or 7% of our total loan portfolio. Only 36% of the $1,400,000,000 in office property loans are collateralized by pure office and only 3.5% are in central business districts. 36% of office property loans are collateralized by office retail stores, office mixed use and medical offices and the remainder 28% are collateralized by office condos. For Q4 2024, we reported net charge offs of $16,300,000 as compared to $4,200,000 in Q3.

[Chang Liu, President and CEO at Cathay General Bancorp]

Of the $16,300,000 net charge offs, dollars 12,200,000 is related to a syndicated commercial loan for a borrower in the recycling business. Our non accrual loans were 0.83 percent of total loans as of December 31, 2024, which increased $6,300,000 to $169,200,000 as compared to Q3. The increase in non accrual loans during Q4 2024 came primarily from a $16,000,000 CRE loan collateralized by a commercial and residential mixed use in New York. The loan was reclassified as non accrual in December after the borrower filed for bankruptcy. The loan is fully secured by the collateral and no loss is projected.

[Chang Liu, President and CEO at Cathay General Bancorp]

Turning to slide 13. As of December 31, 2024, classified loans decreased slightly to $380,000,000 from $382,000,000 in Q3, and our special mention loans increased to $293,000,000 from $203,000,000 in Q3. We recorded a provision for credit loss of $14,500,000 in Q4 2024, same as for Q3. The reserve to loan ratio decreased to 0.83% for Q4 from 0.85% for Q3. However, excluding our residential mortgage portfolio, the total reserve to loan ratio would be 1.08%.

[Chang Liu, President and CEO at Cathay General Bancorp]

Total deposits decreased by $258,000,000 or 5.3 percent annualized during Q4 2024, primarily due to the decrease of $449,000,000 in broker deposits. Total core deposits increased $417,000,000 or 16.7 percent annualized due to seasonal factors and marketing activities. Total time deposits, excluding broker deposits, decreased $226,000,000 during Q4 2024. We expect deposit growth for 2025 to be between 3% 4%. As of December 31, 2024, total uninsured deposits were $8,600,000,000 net of $800,000,000 in collateralized deposits or 43.8 percent of total deposits.

[Chang Liu, President and CEO at Cathay General Bancorp]

We have an unused borrowing capacity from the Federal Home Loan Bank of $7,200,000,000 and the Federal Reserve Bank of $395,000,000 and unplaced securities of $1,500,000,000 as of December 31, 2024. These sources of available liquidity more than covers 100 percent of uninsured and uncollateralized deposits as of December 31, 2024. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chang to discuss the quarterly financial results in more detail.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Thank you, Chang, and good afternoon, everyone. For Q4 2024, net income increased to 12 point $2,000,000 or 18.8 percent to $80,200,000 compared to $67,500,000 for Q3, primarily due to an increase of $1,900,000 in net interest income, dollars 11,600,000 decrease in noninterest expense and $4,100,000 decrease in income tax expense, offset by a $4,900,000 decrease in non interest income. Q4 2024 net interest margin was 3.07% as compared to 3.04% for Q3. We are pleased that our NIM and net interest income appear to have bottomed out, and we anticipate further benefit to the NIM and net interest income based on the ability to lower deposit costs over the next few quarters while having the support of our fixed rate loans. With the December with the strong December job report, the Fed Fund Futures Group projects one rate cut in July 2025.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

We anticipate that the net interest margin for 2025 to range between 3.10% and 3 point 20%. In Q4, interest recoveries and preterm penalties added 4 basis points to the net interest income sorry, to the net interest margin as compared to 5 basis points in net interest margin for Q3. Noninterest income for Q4 2024 decreased $4,900,000 to $15,500,000 when compared to $20,400,000 in Q3 2024. The decrease was primarily due to a 5 point $6,000,000 change in mark to market unrealized gain of 4.3% in Q3 to unrealized loss of $1,300,000 in Q4 on equity securities. Non interest expenses decreased by $11,600,000 or 12 percent to $85,200,000 in Q4 2024 when compared to $96,900,000 in Q3.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

This decrease was primarily due to $12,700,000 in lower solar tax credit funds amortization, we expect core interest expense excluding tax credit and core deposit intangible amortization to increase between 4.5% to 5.5 percent from 2024 to 2025. The effective tax rate for Q4 2024 was 7.6% as compared to 13.6% for Q3. We expect effective tax rate between 19.5 percent 20.5 percent for 2025. We do not anticipate investing in any solar tax credit investment funds in 2025. As of December 31, 2024, our Tier 1 leverage capital ratio increased to 10.97% as compared to 10.2% as of September 30, 2024.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Our Tier 1 risk based capital ratio increased to 13.55 percent from 13.33% as of September 30, 2024, and our total risk based capital ratio increased to 15.09% from 14.88% as of September 30, 2024.

[Chang Liu, President and CEO at Cathay General Bancorp]

Thank you, Heng. We will now proceed to the question and answer portion of the call.

[Operator]

You. Your first question comes from Matthew Clark with Piper Sandler. Please go ahead.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Hey, good afternoon. Just a few questions around the margin. Could you give us the average margin in the month of December and the spot rate on deposits at the end of the year?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Yes. The average margin for the month of December was 3.05 percent I'm sorry, 3 point 11 3.11 percent. That included 6 basis points of interest recoveries. And then what was other part of your question?

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

The spot rate on deposits either total or interest bearing at year end?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

So the total weighted spot rate at year end was 3.52.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay. That's interest bearing. Okay. And then can you remind us how much in the way of CDs you have coming due here in the Q1 and the rates they're maturing at and what do you expect them to renew at?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

It's quite a bit. So we have $4,200,000,000 of CDs maturing. This is from our Chinese Lunar New Year promotion that's maturing and the average yield is 4.6%. We're offering the renewal from the Chinese New Year CD at between 4% and 4.1% depending on the size of the deposit.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay. And then just last one and then I'll hop back in the queue. Your expectations for the low income housing tax credit amortization this year in dollars?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

It's about $10,000,000 a quarter, Matthew.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

And I know you're not going to do any solar, but are there any other tax credit investments embedded in that tax rate guidance? Or is it just the low income housing we're assuming for now?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

It's just low income housing.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay. Thank you.

[Operator]

The next question comes from Chris McGrady with KBW. Please go ahead.

[Christopher Mcgratty, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Thanks for the question. I was wondering if you could unpack the expense, the core expense growth of roughly 5%, a little bit higher than what we've been seeing. I'm wondering if there's a catch up in some investments or anything in particular you'd call out?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

It's mostly we've been adding to staff in 2024. So it's a full year impact of that. And then we expect higher bonus accruals for next year because this year we were paying out bonuses at lower than the target. So that's that, but really Shanghai, there's nothing significant.

[Chang Liu, President and CEO at Cathay General Bancorp]

Yes. So Chris, since spring of 'twenty three, we had to really beef up our risk side of our business given the higher level of maturity on the risk side that's expected from the regulatory side. So that's where we've been adding some of the bodies. I looked at actually our headcount, it's been pretty consistent on the branch side and the lending side other than the uptick in the operational side.

[Christopher Mcgratty, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. Yes, you've talked about that Chang in the past of beating up the regulatory side. Okay, that makes sense. And then on the $90,000,000 increase in, I guess, a special mention. Any color there that you can provide?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Most of it is one credit that just had some lower profitability. So as abundance of caution, we put that loan on special

[Operator]

management. The next question comes from Gary Tenner with D. A. Davidson. Please go ahead.

[Gary Tenner, Managing Director & Senior Research Analyst at D.A. Davidson]

I wanted to ask about the impact of the wildfires. Obviously, nothing in terms of a kind of credit ramification for you this quarter. I know a lot of those areas had been closed to access for a period of time, they may still be. Can you talk about how you've gone about sort of assessing kind of the either property specific exposure you might have or kind of exposure to underlying businesses that might operate in some of these areas?

[Chang Liu, President and CEO at Cathay General Bancorp]

Sure, Gary. So let me kind of give you some update. We look at the affected areas by zip codes. We also looked at what additional data is available based on LA County inspections. So far, we have no loss reported of any of our commercial real estate portfolio, nothing in the business banking portfolio and nothing in the SBA portfolio.

[Chang Liu, President and CEO at Cathay General Bancorp]

In the we have some reported items in the C and I portfolio. There's one C and I portfolio with a collateral in the Palisades in that segment of it. And we have a few of the mortgages and 2 HELOCs that we report we've received reports as well as have verified them through some of the websites. But it's a small number compared to the size of the mortgage assets that we have in total.

[Gary Tenner, Managing Director & Senior Research Analyst at D.A. Davidson]

And then just in terms of the securities yield, it's come down a few quarters in a row. I didn't recall there being much in the way of variable rate securities in your portfolio. Can you kind of talk to expectations of the securities yield going forward?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Yes.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Gary, it's mostly most of the change we've been buying 6 month treasuries. And we so that rate has come down between 2020 during 2024. And then we have some financial institutional debt that's been called or matured. Those were generally in the over 5% range and those were not replaced. So but that's pretty much it.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

We're not looking to expand that the total amount of our securities portfolio at this time.

[Gary Tenner, Managing Director & Senior Research Analyst at D.A. Davidson]

All right. Thank you.

[Operator]

The next question is from Cineco with Stephens. Please go ahead.

[UNIDENTIFIABLE_PERSON, UNIDENTIFIABLE_ROLE at Stephens Inc]

Hey, good afternoon. Jane, just a question on capital. I think I heard in your prepared remarks, continued maybe interest in the buyback, but your capital is still in a really strong position. Just wanted to get updated thoughts from you on any other potential avenues of capital deployment? Is M and A of interest to you in 2025?

[UNIDENTIFIABLE_PERSON, UNIDENTIFIABLE_ROLE at Stephens Inc]

I would love to hear your thoughts.

[Chang Liu, President and CEO at Cathay General Bancorp]

Yes, sure. Andrew, we've always had an eye on the M and A side of the business, but as you know, we're operating a very niche market. There is certainly a number of players in our market. There is certainly some in Texas and New York, but the Texas and New York always sort of sub a billion, which doesn't really move the base that much. The ones in our backyard, it it depends on the opportunity.

[Chang Liu, President and CEO at Cathay General Bancorp]

If the opportunity is there, then certainly we'll look at it. If it makes sense for us and it's accretive to the numbers and if it's the strategic mix for us that makes sense, it's definitely something we'll look at. But some of them have profiles that's very similar to ours and there's not a lot of sort of enterprise value there. So they certainly give us a pause even if they were to become available.

[UNIDENTIFIABLE_PERSON, UNIDENTIFIABLE_ROLE at Stephens Inc]

Understood. Thank you. And then on the margin, I guess, specifically the broker deposit runoff this quarter, was that pretty evenly spread throughout the Q4? Was it front end or back end loaded? And then just expectations going forward, is there any more broker deposits that you foresee remixing throughout 2025?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Yes, Andrew. Most of it was in November December where we had an inflow of core deposits, some of which left in the second half of December, the core deposits. But we're we'll probably just maintain the brokers CD portfolio, but it's come down quite a bit and we'll just maintain it unless we have good deposit growth less higher than our loan growth. But it's an incremental source of deposits for us.

[UNIDENTIFIABLE_PERSON, UNIDENTIFIABLE_ROLE at Stephens Inc]

Got it. Okay. Thank you for taking the questions.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Yes.

[Heng Chen, EVP and CFO at Cathay General Bancorp]

Thank you.

[Operator]

The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

I think you called out as part of your net charge offs being shared national credit related, can you just remind us how large your SNC portfolio is?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

It's about 4% of our total loans. We've been trying to get that in 2024 to reduce risk exposures.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Got it. And I guess what percent of that portfolio is criticized?

[Heng Chen, EVP and CFO at Cathay General Bancorp]

I think most of the criticized is on our it's in our non accrual. So it's well, it's lower than average because we did sell about 50,000,000 dollars of Shared National Credits in Q4 to reduce credit exposures. And we sold those at small discount, 2% or 3%.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Got it. Okay. And then just on the Chief Risk Officer departure, I think late last week, looked like retirement, but can you just provide some more color there on the Sure.

[Chang Liu, President and CEO at Cathay General Bancorp]

Yes, we I mean it's really kind of just timing, right? I mean it's really the incumbent CRO has expressed that he wanted to step down and retire and kind of move off to the next chapter. But in the meantime, we were able to go on to market and search for candidates that are qualified in that space. And really, I think post spring of 'twenty three, we need to be more focused on the risk side of the business. And so we believe we found the right candidate in Diana and we're counting on her and going forward to elevate the maturity level of the risk side for us.

[Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Great. Thank

[Chang Liu, President and CEO at Cathay General Bancorp]

you. Thank

[Operator]

you for your participation. I will now turn the call back over to Kathy General of Bancorp's Management for closing remarks. Please go ahead.

[Chang Liu, President and CEO at Cathay General Bancorp]

I want to thank everyone for joining us on our call and we look forward to speaking with you at our next quarterly earnings release call.

Participants

Executives

• Georgia Lo, Assistant Secretary & Investor Relations
• Chang Liu, President and CEO
• Heng Chen, EVP and CFO

Analysts

• Matthew Clark, Managing Director & Senior Research Analyst at Piper Sandler Companies
• Christopher Mcgratty, Managing Director at Keefe, Bruyette & Woods (KBW)
• Gary Tenner, Managing Director & Senior Research Analyst at D.A. Davidson
• UNIDENTIFIABLE_PERSON, UNIDENTIFIABLE_ROLE at Stephens Inc